Workforce composition and innovation: How diversity in employees' ethnic and educational backgrounds facilitates firm-level innovativeness

Mohammadi, A, Broström, A, and C Franzoni (2017). Workforce composition and innovation: How diversity in employees' ethnic and educational backgrounds facilitates firm-level innovativeness, Journal of Product Innovation Management, 34(4): 406-426.

This article studies how workforce composition is related to a firm's success in introducing radical innovations. Previous studies have argued that teams composed of individuals with diverse backgrounds are able to perform more information processing and make deeper use of the information, which is important to accomplish complex tasks.

The authors suggest that this argument can be extended to the level of the aggregate workforce of high-technology firms. In particular, they argue that ethnic and higher education diversity within the workforce is associated with superior performance in radical innovation.

Using a sample of 3,888 Swedish firms, this article demonstrates that having greater workforce diversity in terms of both ethnic background and educational disciplinary background is positively correlated to the share of a firm's turnover generated by radical innovation. Having more external collaborations does, however, seem to reduce the importance of educational background diversity.

The impact of ethnic diversity is not affected by external collaboration. These findings hold after using alternative measures of dependent and independent variables, alternative sample sizes, and alternative estimation techniques. The research findings presented in this article would seem to have immediate and important practical implications. They suggest that companies may pursue recruitment policies inspired by greater ethnic and disciplinary diversity as a way to boost the innovativeness of the organization.

From a managerial perspective, it may be concluded that workforce disciplinary diversity could be potentially replaced by more external links, while ethnic diversity could not.